SEC Launches Probe into Altria’s Investment in JUUL

SEC Launches Probe into Altria's Investment in JUUL

According to a report from Reuters, U.S. regulators have opened a probe that is examining Altria Group’s investment in e-cigarette manufacturer JUUL Labs.

The U.S. Securities and Exchange (SEC) Commission is investigating whether Altria Group adequately disclosed the risks to its shareholders when it announced its $12.8 billion investment for a 35 percent stake in the e-cigarette manufacturer back in December 2018 [read more here]. The SEC has issued subpoenas to JUUL, which the company has already responded to, according to reports. JUUL has already submitted documents including correspondence with Altria and financial projections JUUL shared with Altria before the deal, a source told Reuters.

Since announcing its investment, Altria has recorded a $8.6 billion in impairment charges since investing in JUUL, bringing its total investment value down to $4.2 billion by the end of 2019 [read more here]. According to Altria CEO Howard Willard, when the company first made its investment in JUUL the company was an industry leader and “market share leader and market growth leader.” Now, however, Howard says the company is “highly disappointed” in its JUUL investment.

Though JUUL has pulled much of its flavored products off the market, it is now preparing for the future by submitting premarket tobacco product applications to gain authorization from the U.S. Food and Drug Administration (FDA). An internal memo circulated around the company and reported by Bloomberg News valued the company at about $20 billion.

News of the probe sent Altria’s stock downward, though the company’s stock price has dropped 40 percent in the past 3 years, from $74 in February 2017 to $45 in February 2020. The investment in JUUL and decreasing cigarette volumes have all been contributing factors of Altria’s falling stock prices. Some analysts, however, still are recommending investors consider Altria stock, betting on a possible rebound brought on by traditional tobacco making a comeback as vapor and e-cigarettes continue to decline.

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